In the trenches

Whether your growth strategy is tilted toward organic or external growth, Chet Erwin and Mike McGhan have a lesson to teach you: Listen to your employees on the front lines.

The co-CEOs, co-founders and general partners of Valerus Compression Services LP — a provider of natural gas compressor packages, production equipment and processing solutions — have each been in the natural gas business for nearly 30 years. They’ve started multiple companies together. Through several decades of leading businesses, they’ve learned that successful businesses harness the knowledge of their employees, not just their labor.

Your employees in the trenches are the ones who are developing relationships with customers, prospective customers and suppliers. There is a good chance they will see trends developing in a particular market before you do.

With that in mind, Erwin and McGhan strive to keep the lines of communication open between the home office and the employees on the ground level, which in turn facilitates an open dialogue with customers and suppliers.

“We listen to our front-line people,” Erwin says. “It goes back to having a ‘Get out from behind your desk’ strategy. We see a lot of opportunities as we travel throughout the business units because we spend a lot of time talking to individual business leaders and having a lot of interaction throughout our industry.”

McGhan says it’s all about relationships.

“Our business is to a large degree built on long-term relationships,” McGhan says. “You have to continue to build on new relationships and maintain your existing relationships, which is what we’ve done for the past 25 to 30 years.”

And here are some of the lessons they’ve learned along the way.

Hit the road

Like a lot of company heads, McGhan and Erwin often rely on e-mail to stay in touch with others in their organization. While e-mail is an effective way to stay in touch, it can’t take the place of other, more personal forms of communication.

“Unfortunately, we probably rely on e-mail too much,” Erwin says. “That’s why, most importantly, Mike and I spend a lot of time at our branch facilities, at safety meetings and other organized events within the company. That way, we’re sharing the future of the company so we have buy-in at every level.

“Communication engages employees. It makes them part of the strategy. That’s why we treat our people more like partners. We engage them more in our thought processes and how we want to grow the company. Our decision-making process is very disciplined, but we want to make sure that if we make a new decision and go down a new course, that our employees understand why. We’ve had great buy-in from our core people because we’ve made them part of the decision-making process and communicated it to them very early on.”

When employees are involved in the process, they take a greater level of ownership.

“An informed employee who feels engaged as the company grows is very important,” McGhan says. “As they buy in to our strategies and where we’re taking the company, they’ll be able to better execute on what we’re trying to accomplish. Employees will perform much better if they’re part of the answer, as opposed to having those decisions made solely on the corporate level and pushed out to the rest of the organization without their input.”

To have time to engage your employees in person and on their turf, you need to put communication time on your schedule and stick to it.

“We’ve been busy over the last couple of years, but we’ve put certain dates on the calendar,” Erwin says. “We try to stay on schedule as best as we can with our weekly staff meetings. Our vice presidents are engaged in a whole day of meetings once a month. Each one of our vice presidents has a direct line of communication two or three levels down in the organization, which they can use to communicate our priorities.”

By taking a proactive approach to communication, the corporate leaders at Valerus are demonstrating the type of behavior they want to see employees exhibit. They’re also developing a level of comfort and familiarity with workers who might occupy positions multiple rungs below the top management.

McGhan says that’s a critical element in building a corporate culture in which communication is valued.

“People need to feel comfortable with expressing their opinions, and we make it very easy and open for them to come into our offices, speak up in meetings, even stand up and disagree with something we say,” McGhan says. “We encourage that because it creates more involvement from all the employees.”

Years of observing how other top executives lead their companies has underscored to Erwin the need to get out, hit the road, take to the sky — whatever is needed for you to interact with your employees on a personal basis. At times, you might get lured into the trap of running your business solely from your office. But most of the time, your office isn’t where the action is, and it isn’t where your customers are.

“We’ve watched how our peers operate, both inside and outside our industry, and my advice would be simply to get out from behind your desk,” Erwin says. “Go talk to your employees. Go engage them in what you are doing. And on top of that, go talk to your customers so they know your products and they know what the timing and demand of those products are.

“Something we also do is spend a considerable amount of time with our vendors, as well. It takes all of the different facets operating together in order for a business to be successful.”

Find the right players

In a company the size of Valerus — 1,200 employees and $320 million in 2007 revenue — it is difficult for those at the top of the organization to get every employee on board with the growth strategy and vision of the company. It’s not that employees are necessarily resistant, it’s that it’s difficult for upper management to cast a net that wide.

What Erwin and McGhan have done is attempt to hire people with experience in the natural gas compression industry who have been receptive to growth and change throughout their careers. Those people then help spread a growth-oriented mindset throughout the organization.

“With 1,200 employees, it’s very difficult to get buy-in from all 1,200 people,” Erwin says. “We push and communicate our strategy several levels down into the organization to try and achieve buy-in, in terms of our strategy. To help with that, we’ve been very fortunate to attract people who we know and have had business relationships with for many years. So as they joined Valerus, we knew they were attuned to growth as part of our culture. The people we have here are all here by design. Nobody in our management group is here by coincidence, and that’s because you have to be very selective in the people you hire. That’s why our strategy has worked.”

When building your work force, you need to recognize what you want in your managers and employees. Not every candidate will fit your culture. In fact, the majority may not.

“You need to have a growth culture, and not all companies have a culture that was developed for growth. Not all people are geared to be part of a growth organization,” McGhan says. “If start-up and growth are part of your strategy, you want to make sure you have the right people on board who embrace that. Remember that the vast majority of employees out there are not necessarily geared for that.

“Many people work for large companies and see a minimal amount of growth, and certainly are engaged in very little of the process of deciding how a company grows. So you have to have the right level of commitment from your people, because growth is tough. Growth isn’t easy, and you clearly need the proper buy-in from your employees and your management.”

Find the right opportunities

Establishing a growth culture and finding employees who fit the culture will help you identify the growth opportunities that you want to pursue.

The manner in which you grow will likely be determined by a number of factors — your resources, the skill sets and backgrounds of your employees, and the landscape of the market.

In forming Valerus, McGhan and Erwin decided that the condition of the natural gas compression industry lent itself to organic growth. They grow Valerus by seeking out new opportunities in which they can leverage Valerus’ resources and core competencies for new customers.

But that hasn’t always been the case. In previous business ventures, the pair has grown through acquisitions.

“You have to realize that you can have growth opportunities in a number of ways,” Erwin says. “You can have them through company acquisitions or through organic growth, just building out the business one brick at a time. At Valerus, we completed one acquisition, but most of our growth has been by just identifying our customers’ needs.”

In order to stay adaptable to various methods of growth, you need to go back to the basic principles of communication and stay connected to your front-line employees by visiting them on their turf.

“If you can do that, you’ll be able to better embrace change,” McGhan says. “We look for opportunities to take advantage of changes in the marketplace and different profiles within our business segments. A lot of leaders have historically fought to keep things the same, but history shows that leaders who will embrace change and accept it will have a more successful organization.”

However, the ability to grow and adapt also carries with it the responsibility to know when an opportunity isn’t right. You must develop the discipline to walk away from a growth opportunity if the due diligence says you shouldn’t pursue it.

In their previous endeavors, Erwin and McGhan completed nearly 50 acquisitions. By the time they founded Valerus, experience had taught them the difference between a good opportunity and one that is not worth pursuing.

“We’ve had opportunities at Valerus where we looked at it, the employees fit, the products and services fit, but we’ve walked away because the owner we wanted to bring on board didn’t want to work at this anymore,” Erwin says.

“You have to do the analysis as to how they’re going to fit the organization and how the company will fit the culture you have. We look at the culture and the fit of the organization and see if the opportunity makes sense for us. We’re very conscious of the chemistry of our organization.”

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